Investment Opportunity
As the Southern California desert has become increasingly populated, the demands on municipal water companies’ aging infrastructure have increased, thereby resulting in continually declining water quality. As a result, companies that sold, rented and serviced water softening and point-of-use water purification equipment have experienced rapid growth. The consolidation of such companies has provided a unique opportunity for value creation through the integration of route operations, improvement of the marketing and promotion of these companies, and the provision of capital to support growth. In 1999, industry revenues for residential water treatment were estimated at over $2.4 billion, with the market for water softeners and home purification systems growing at approximately 8% per year annually. The major players in the industry possessed an estimated aggregate 55% market share.

Business Description
American Water Investments, LLC is a San Diego, California-based provider of water softening and reverse osmosis drinking water systems to both commercial and residential customers. The Company operates through the sale, renting and servicing of drinking water equipment and home purification systems in San Diego.

Transaction Description
In December 1998, Prometheus acquired Aqua-Fresh Drinking Water Systems, Inc. through the contribution of approximately $1 million in common equity.

In January 1999, Prometheus acquired both Cal Soft Water Services, Inc. and Shadow Mountain Spring Water, Inc. through the contribution of approximately $1.5 million in common equity, including co-investments from Churchill Capital, and $2.4 million in subordinated debt from Churchill Capital.

In July 1999, Prometheus acquired Rayne-San Diego, Inc. through the contribution of approximately $1.25 million in common equity, including co-investments from Churchill Capital, which also provided an additional $3.75 million in subordinated debt. A $25 million revolving credit facility from GE Capital was also arranged to provide funds to complete the financing for this transaction.

In October 1999, Prometheus acquired Boncor Water Systems, Inc. through the contribution of approximately $0.8 million in common equity from both Prometheus and Churchill Capital. The credit facility from GE Capital completed this acquisition.